Starbucks (SBUX) Earnings Report: Q4 2015 … Name: Starbucks Corp Company Ticker: SBUX Sector: Services Industry: Leisure Event Description: Q4 2015 Earnings Call Market Cap as of

CompanyName:StarbucksCorpCompanyTicker:SBUXSector:ServicesIndustry:Leisure

EventDescription:Q42015EarningsCallMarketCapasofEventDate:93.07BPriceasofEventDate:62.5

©2014TheStreet,Inc.Al l R ightsReserved Page1of26

Starbucks(SBUX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingStarbucksconferencecalltookplaceonOctober29,2015,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JoAnnDeGrande;Starbucks;InvestorRelationsHowardSchultz;Starbucks;Chairman&CEOKevinJohnson;Starbucks;President&COOScottMaw;Starbucks;CFO

OtherPart icipants

AdamBrotman;ChiefDigitalOfficer;AnalystMattRyan;GlobalChiefStrategyOfficer;AnalystCliffBurrows;GroupPresident;AnalystJohnCulver;GroupPresident;AnalystJohnIvankoe;JPMorgan;AnalystSaraSenatore;Bernstein;AnalystKeithSiegner;UBS;AnalystSharonZackfia;WilliamBlair;AnalystDavidPalmer;RBCCapitalMarkets;AnalystJohnGlass;MorganStanley;AnalystDavidTarantino;RobertW.Baird;AnalystKarenHolthouse;GoldmanSachs;AnalystAndrewCharles;Cowen;AnalystJeffBernstein;BarclaysCapital;AnalystKarenShort;DeutscheBank;AnalystMattDiFrisco;GuggenheimSecuritiesLLC;AnalystJoeBuckley;BankofAmericaMerrillLynch;AnalystAndyBarish;JefferiesLLC;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetoStarbucksCoffeeCompany'sfourth-quarterandfiscal-year2015earningsconferencecall.

(OperatorInstructions).

Ms.DeGrande,youmaybeginyourconference.

JoAnnDeGrande (InvestorRelations):

Thankyou.Goodafternoon.ThisisJoAnnDeGrande,VicePresidentofInvestorRelationsforStarbucksCoffeeCompany.




Thankyouforjoiningustodaytodiscussourfourth-quarterandfiscal2015year-endresults,whichwillbeledbyHowardSchultz,ChairmanandCEO;KevinJohnson,PresidentandCOO;andScottMaw,CFO.JoiningusforQ&AareCliffBurrows,GroupPresidentUS/Americas;JohnCulver,GroupPresidentChina,AsiaPacific,ChannelDevelopment,andEmergingBrands;MikeConway,PresidentGlobalChannelDevelopment;MattRyan,GlobalChiefStrategyOfficer;andAdamBrotman,ChiefDigitalOfficer.

Givenallwehavetodiscusstoday,bothQ4and2015year-endresults,alongwithintroducingourinitialfiscal2016growthtargets,weanticipatethiscallwillrunlongertodaythanourtypicalquarterlyearningscalls.

Thisconferencecallwillincludeforward-lookingstatements,whicharesubjecttovariousrisksanduncertaintiesthatcancauseouractualresultstodiffermateriallyfromthesestatements.AnysuchstatementsshouldbeconsideredinconjunctionwithcautionarystatementsinourearningsreleaseandriskfactordiscussionsinourfilingswiththeSEC,includingourlastreportonForm10-K.Starbucksassumesnoobligationtoupdateanyoftheseforward-lookingstatementsorinformation.

Pleaserefertoourwebsiteatinvestor.starbucks.comtofindareconciliationofnon-GAAPfinancialmeasuresreferencedintoday'scallwiththeircorrespondingGAAPmeasures.

Thisconferencecallisbeingwebcastandanarchiveofthewebcastwillbeavailableonourwebsiteatinvestor.starbucks.comlatertoday.

LetmenowturnthecallovertoHoward.

HowardSchultz (Chairman&CEO):

Thankyou,JoAnn,andgoodafternoon,everyone.

Starbucks'recordQ4financialresults,highlightedbystunningcomp-storesalesincreasesof8%globally,9%intheUS,andoursecondsequentialquarterofa4%increaseinglobaltraffic,underscoresthestrengthandrelevanceoftheStarbucksbrandaroundtheworldandthesuccessoftheinvestmentswecontinuetomakeinourpeople,inourbusiness,innewbeverageandfoodinnovation,andingroundbreakingtechnologyinnovationthatisdeepeningourconnectiontocustomerseverywhere.

NoteworthyisthatQ4representedour23rdconsecutivequarterofglobalcomp-storesalesgrowthof5%ormore,aremarkableachievementgiventhescale,breadth,andcomplexityofourbusinessandthefactthatourglobalcompbasenowincludesnearly10,000storesincountriesandmarketsaroundtheworld.

InQ4,Starbucksincreasedrevenuestoarecord$4.9billionandnon-GAAPEPStoaQ4recordof$0.43pershare.Andforthefullyear,wegeneratedrecordrevenuesof$19.2billion,recordnon-GAAPEPSof$1.58pershare,andweservedover72millionmorecustomeroccasionsfromourglobalcomp-storebasethanwedidtheyearbefore.

Starbucks'performancethroughoutfiscal2015wasoutstandingbyanystandard,metric,orcomparison.Weareconnectingmoredeeplyandmoremeaningfullywithmorecustomersacrossalldaypartsthaneverbefore.Andwearedeliveringquarterafterquarterofrecord-breakingfinancialresults,despitetheacceleratingshiftinconsumerbehaviorawayfromtraditionalbricks-and-mortarretailinganddespitedifficultmacroeconomicretailandconsumerheadwindsthatcontinuetochallengetraditionalretailers.

Atourinvestorconferencelastyear,welaidoutforyouourfive-yearstrategicplanforgrowingourbusinessandcontinuingtodeliverworld-leadingfinancialandoperatingperformanceandlong-term,sustainable,profitablegrowthintothefuture.Starbucksisplayingthelonggameandourplanispremisedonsevencorestrategiesthatareguidingbothourfocusandourexecution.




Letmestartwiththefirstofourstrategies,creatingbranddifferentiationtoanelevatedin-storecustomerexperiencebroughttolifethroughourover300,000Starbuckspartnersaroundtheworldwhoproudlywearthegreenapron,thebest,mostengaged,andcustomer-centricpeopleinallofretailtoday.

Starbuckswillcontinuetoleadandtosucceed,firstandforemost,becauseofourpartners.Theinvestmentswemakeinourpartnersandourpartners'connectiontoourcustomersandourbrandareatthecenterofwhatdrivesStarbucks'businessandsetsusapartfromeveryotherretailerintheworld.Andtheinvestmentswemakeinourpartnerspaytangibledividendsintheformofmoresatisfiedandengagedpartners,deeperconnectionsamongpartnersandwithcustomers,andimprovedin-storeefficiency,allofwhichcontributetoanelevatedin-storeStarbucksexperienceforeveryone,partnersandcustomersalike.

Noteworthyisthattodayweareseeingimprovementsinpartnerattrition,adirectresultofourpartnerinvestmentsatatimewhentheindustryoverallisactuallymovingintheoppositedirection.Andweareseeingadirectcorrelationbetweenreducedpartnerattritionandourbusinessresults.Ourcompresultsarestrongestwherewearehavingourgreatestsuccessinreducingturnover.

Thereisnodoubtthatourpartnerinvestmentslinkdirectlybacktoourabilitytopostrecordprofits,industry-leadingglobalcomp-storesalesincreases,andback-to-backquartersof4%increasesinglobaltraffic,andthattheyaredrivingourbusiness.

Asforthesecondofourcorestrategies,coffeeleadership,Icouldn'tbemoreproudofthemanywaysinwhichweareextendingourleadandcreatinggreaterdistanceandseparationfromourcompetitors.TheStarbucksRoasteryweopenedinSeattlelastDecember,thefirstofseveralroasterieswehaveplannedformajorcitiesaroundtheworld,isclearlytheworld'sdefinitiveimmersivecoffeeexperienceandtheanchorofanewinitiativeinbuilding500-pluscoffee-forwardStarbucksReservestoresinkeyglobalmarketsaroundtheworld.

TheStarbucksReservestorewejustopenedinLondonthislastmonthtotremendouscustomerresponseandacclaimisemblematicofourStarbucksReservestore,thestrategy,andtheinitiativethatiscomingtolife.WecontinuetoelevateandbringpremiumizationtotheentirecoffeecategorywithourStarbucksReservebrand.TheStarbucksReserveoffersconsumersthefinestassortmentofexclusive,microlotcoffeesfromaroundtheworldanditisnowavailableinthousandsofStarbucksstoresglobally,reflectingadiversityoforiginandsourcingcapabilitythatonlyStarbuckscandeliver.

Wehavenowbuiltsevenfarmersupportcentersaroundtheworld,mostrecentlyinSumatra,Indonesia,withtheeighthopeninginMexicoin2016.Ourfarmersupportcentersprovideanon-the-groundagronomyservicethatpromotessustainablebest-farmingpracticesandaugmentourcomprehensiveapproachtoethicalsourcing.Earlierthisyear,weverified99%ofourcoffeeasethicallysourcedandourrigorousapproachtoenvironmentalandsocialbestpracticesingrowingandprocessingcoffeehasenabledustoachievethisrecognition.

Todate,morethan1millionfarmersandworkersonfourcontinentshavebenefitedfromourfarmersupportprogram,soonceagaindemonstratingStarbucks'coffeeleadershipandauthorityandourcommitmenttogivingbacktothepeoplearoundtheworldwhosupportourpartnersandourbusinessandtothecommunitiesinwhichweoperate.

Nowsomeyearsago,thesuggestionwasmadethatStarbucksmaybereachingstoresaturationintheUS.Thedatareportedsincedemonstratesthatnothingcouldbefurtherfromthetruthasintheinterveningyearswehaveopenedthousandsofnewstores,witheachsuccessfulclassofstoresoutperformingthepriorclass.Andournewestclassofstoresisperformingatthehighestlevelinourhistory,generatingfirst-yearaverageunitvolumesof$1.4million,upnearly20%fromonlythreeyears




ago,whilealsodeliveringrecordprofitabilityandreturnsoninvestment.

Atthesametime,wecontinuetoopennewStarbucksstoresandintroducedynamicnewbest-of-classstoredesignsandformats,likeourexpressstoresanddrive-thrus,whilemeaningfullygrowingcompsandwithoutanynetcannibalizationofexistingStarbucksstoresoperatinginthesametradingarea.Wecannotidentifyanyotherretailerthatcanmakethesekindsofclaims,especiallyintoday'sverytoughretailenvironment.

Ourstrategyforsustainedlong-termprofitablegrowthisalsoemphasizingandidentifyingnewcustomerneedstatesandcreatingandfulfillingnewdaypartopportunitiesandoccasionsinourstores,growingourbusinessinteawiththeTeavanabrand,andbuildingourCPGbusinessbyleveragingcustomeraffinitywiththeStarbucksbrand,ourstrongcustomerloyalty,andfurtherextensionofStarbucksStarsdown-the-aisleinitiatives.

Bycreatingmoreopportunitiesformorepeopletoengagewithusmoreoften,bothinsideandoutsideofourstores,Starbuckshassuccessfullyintegratedandcoordinatedretailandwholesalestrategyindrivingourbusinessandourgrowtharoundtheworld.Itshouldbementionedthatnonationalorglobalretailerhasbeenabletoleveragearetail-storefootprintintoaCPGbusinessremotelyapproachingthesize,scale,andprofitabilityofStarbucks.Today,Starbucks'CPGbusinessrepresentsbothaprimeprofitcenterforusandapowerfulcomplementarychannelofdistribution.

Finally,afewthoughtsonhowweareleveragingtechnology,digitalengagement,andloyaltytodriveourbusiness.Byanticipatingandbeginningtoinvestmanyyearsaheadofthemobiletechnologycurve,Starbuckstodayisdefiningcustomer-facingandapartment-facingmobileandretailexperiencesofthefuture.Andthetechnologyinnovationsweareintroducingarefurtherstrengtheningourbrand,improvingourefficiencyandin-storeexecution,increasingourprofitability,enablingustofurtherextendourleadovercompetitors,and,mostimportantly,enablingustodeliveranelevatedStarbucksexperiencetoourcustomers.

Starbucksoccupiesafront-rowseatattheintersectionofthephysicalanddigitalworldslikenoothercompanyanywhereinoroutofretail.Ouruniquecombinationofassetsthatincludesagrowingglobalphysicalfootprintofnowover23,000stores,deepconsumerengagementandtrustinourbrand,millionsofcustomerseveryday,andbreakthroughmobileanddigitaltechnologiesaretogetherenablingustoextendourreachanddeepenouremotionalconnectiontocustomerseverywhereinwaysthatwerenotimaginableevenafewyearsago.

Ourcustomerstrustusandrewarduswithunparalleledfrequencyandloyalty,asdemonstratedbytherobustnessofourbusiness,theunprecedentedincreasesinglobaltrafficweareseeing,andtheamountofcurrencypreloadedonourcustomers'mobiledevices.WecontinuetoleveragealltheseassetsinwaysthatareaccretivetoourbusinessandtotheheritageofourCompany.

Ourindustry-leadingmobileapphasemergedasanevolvingplatformandprofitdriverofitsown,creatingmultipletouchpointsthatwillcontinuetodriveincrementalityandcreatenewbusinessandprofitopportunitiesforusinthefuture.ThepartnershipswerecentlyannouncedwithTheNewYorkTimes,Spotify,andLyftarethefirstofmanypartnershipsthatwillenableustoincreasinglyleverageandmonetizetheplatformandourothertechnologyinvestments.Throughtheseinvestmentsinthebest-of-classmobileanddigitalexperiencethatStarbucksdelivers,webelievethatwearebuildinganunassailablepositionthatwillonlystrengthenandbecomemorerelevantastoday'sincreasinglymobile-firstconsumereconomyevolves.

Butdespiteourindustry-leadingpositioninmobileanddigitaltoday,wearecontinuingtopushtheenvelopeandnowhavelineofsightonthenextgenerationoffeaturestoexciteanddelightour




customersandourpartners.Mobilepaymentnowaccountsfor21%ofalltransactionsinourUSCompany-ownedstores,andalthoughweonlycompletedtherolloutofMobileOrder&Payacrossoursystem7,500USCompany-ownedstoreportfolioinSeptember,wewerealreadyoperatingatarunrateofover5milliontransactionspermonth.Andthatfigure,believeitornot,isgrowingbythehour.

WehaveseenthepatternofacceleratedadoptionofMobileOrder&Paywitheachsuccessiveregionandmarketweenterplayoutoverandoveragain,andI'mpleasedtoreportthatweareseeingitagainintermsofthispattern,acceleratedadoption,repeatintheearlydaysofourrecentinternationallaunchesofMobileOrder&PayinboththeUKandCanada.

Membershipinourfast-growingandindustry-leadingMyStarbucksRewardsprogram,ourloyaltyprogram,continuestogrowandwenowhaveover20millionmembersincountriesaroundtheworld.Andtwoweeksago,welauncheddeliveryintheEmpireStateBuildingtofavorablecustomerandmediaresponse,andwewillbelaunchingdeliveryinSeattleinconjunctionwithPostmateslaterthisquarter.

ButthegrowthinincrementalityyouareseeingtodayisonlythebeginningofanexcitingevolutionofStarbucks'businessthatcommercializationofournewproprietarytechnologiesisenabling.Anditallismadepossiblebytheinvestmentswehavemadeandcontinuetomakeinourmobile,digital,andloyaltyprograms.

AsIwaspreparingforthiscall,Icouldn'thelpbutbecomeabitnostalgicasIreflectedhowgratifyingthisquarterandyearhasbeen.Andnowwithamarketcappoisedtoexceed$100billion,howfarwehavecomefromthatsmallcoffeecompanyinSeattlethathad125storesatthetimeofourIPOinJune1992.

23,000storesin68countriesaroundtheworld,closeto2,000storesinChina,over2,000storesinEMEA,andover1,000storeseachinJapanandKorea,andover180,000pointsofCPGdistributionaroundtheworld;thedeep,authenticconnectionourcustomershavewiththeStarbucksbrandandwithourpeople,ourvalues,andourculture;andtheuniversalappealoftheStarbucksexperience,stunningfinancialperformance,coupledwithunmatchedgroundbreakinginnovationthatisrelevanttoourcustomersandourpeople,andsomuchonthehorizon.

Neverinour23yearsasapubliccompanyhastheStarbucksbrandorourbusinessbeenmorerelevantorbeenstronger,norhaveouraspirationsandtheopportunitiesthatlieaheadofus.Weremainhumbleandsteadfastinourmissiontobuildagreatenduringcompanyandasmanagersandleaderstoexceedtheexpectationsofourcustomersandourpartners.

Withthat,IwillturnitovertoKevinJohnson.

KevinJohnson (President&COO):

Thanks,Howard,andgoodafternoon,everyone.Iwouldliketotakeafewminutestoprovidemorecoloronthequarterandsharemyperspectiveonourbusinessasweenterfiscal-year2016.ThenIwillturnthecallovertoScottfordetailsonourfinancialperformanceandoutlookforfiscal-year2016.

Howardhighlightedafewkeythemes--stellaroperatingandfinancialperformance,ourinvestmentsarepayingoff,andwehavegreatconfidenceinourfuture.SincetakingontheCOOroleinMarch,I'vebeenpersonallyfocusedonoperationalizingthesevencorestrategiesforgrowthweoutlinedatlastDecember'sinvestorday,allocatingresourcesagainstthoseoperatingplans,anddrivingexecutionacrossthebusiness.Theinvestmentswearemakingarealignedwiththosestrategiesandtheyareworking,givingusconfidencegoingintofiscal-year2016thatwehavelineofsighttoournextwaveofinitiativesandthebusinessoutcomesthatwillfollow.

Let'stakealookateachbusinesssegment.Ourfast-growingAmericassegmentcontinuestodeliver




industry-leadinggrowth,posting8%compgrowthinQ4,with9%compgrowthintheUS.Americasgrewrevenues11%inQ4,fantasticoperatingperformanceforabusinessofitssize,anditopened612netnewstoresoverthepast12months.

Ourbeverageprogram,fueledbyinnovation,suchasournewColdBrew,andstrongcorebeverageperformance,drove6pointsofcompgrowthanddeliveredincreasedfoodattach.Salesoficedbeverages,includingTeavanaShakenIcedTeas,grew20%yearonyearandourlimited-timeofferingline-upwiththenewandimprovedPumpkinSpiceLatte,SaltedCaramelLatte,andToastedGrahamLatteperformedwellaheadofourinitialexpectations.

Noteworthyisthatinfiscal-year2015,Teavana-brandedhandcraftedteabeveragesgeneratednearly$1billionofsalesthroughStarbucksstoresintheUS,up12%overlastyear.AndwewillbebringingTeavana-brandedhandcraftedteabeveragestoCAPandEMEAinfiscal-year2016.

Foodrevenuegrew19%inthequarter,contributing3pointsofcompgrowth,includingattach.Ourbreakfastsandwichplatform,whichhasnowdoubledinsizefromjustthreeyearsago,isincreasinglyresonatingwithourcustomersandourlunchprogramisaccelerating.Ourfocusoncreatingnewoccasionsenabledustogrowineverydaypart.Thedataisclear-Starbucksisincreasinglybecomingafooddestinationacrossmultipledayparts.

Wehavemomentumgoingintoholiday,officiallystartingformillionsofcustomersintheUSandaroundtheworldthisweekendwhenStarbuckscupsturnredandwecelebratethereturnofChestnutPralineLatte,EggnogandGingerbreadLatte,PeppermintMocha,andCaramelBruleeLatte.Wehaveleveragedlastyear'slearningsinareimaginedin-storeexperienceforholidayandcreatedanexperiencethatembracesfoodandbeverageinnovationwhileleveragingallofourbestassets,includingdigital,loyaltycard,mobile,andourglobalstorefootprint.Ourpartnersareexcitedandtheyareready.

Thisyear,customerswillfindanewseasonalfavoritebeveragewhichbuildsuponthepopularityofourFlatWhiteandholidaybeveragesandthereturnofourholidayDotCollection.Weareexpandingourdotcomgiftshoptoofferseamlessonlineandoff-lineshoppingexperiences.Allthemerchandiseourcustomersseeinourstoreswillnowbeavailableonline.

Ourgiftcardprogramisabigpartofholiday.YoumayrecallthatlastyearoneinsevenAmericansreceivedaStarbucksgiftcardovertheholidays,generatingover$1.6billionincardloadsinourfirstquarteroffiscal-year2015.Thisyear,wehavereimaginedourcardmall,expandedtheprogramtoincludeallUSCompany-operatedstores,andwe'reintroducingalimitedofferingofpremiumcards.

Wearealsobringingbacktheopportunityforcustomerstowinsomethingthatisn'tforsale,StarbucksforLife.ThisprogramwillbeexclusivetoourMSRmemberswheretheywillhaveopportunitiestowinthisveryspecialreward.NoteworthyisthattotalcardloadsintheUSandCanada,includingreloadsandactivations,infiscal-year2015totaled$5.1billion,up19%yearonyear.

OurChinaAsiaPacificsegmentdeliveredcompgrowthof6%,drivenentirelybyincreasedtraffic,withrevenuegrowing111--110%,18%excludingtheimpactofapproximately$287millionfromtheownershipchangeinStarbucksJapanandnegativeimpactofFX.Theresultisoutstandingoperating-incomeleveragewith25%growthinthequarter.

Buildingforthefuture,rapidstoregrowthcontinuesasweaddedarecord838netnewstoresinfiscal-year2015.OurnewclassofCompany-operatedstoresinCAPareoutperformingthepriorclass,generatingrecordAUVsandprofit,resultsthatdemonstratetheacceleratingstrengthandrelevanceoftheStarbucksbrandacrosstheregion.

Wenowhaveover1,800storesin95citiesthroughoutChina.Ourbrandhasneverbeenstrongerand




ourconnectiontoourcustomershasneverbeendeeper.Wecontinuetointroduceinnovativenewfoodandbeverageitemsintothemarket--ColdBrewbeingoneexample--andwe'releveragingallofourphysical,digital,andloyaltyassetstobecomeanincreasingrelevantpartofthedailyroutineforourrapidlygrowingcustomerbaseinChina.Andwenowhaveover8millionMSRcustomersinChina,givingconfidenceinourcommitmenttohaving3,500storesinChinabytheyear2019.

OurtrafficgrowthinChinacontinuestooutpaceourCAPsegmenttrafficgrowthoverallandwesawtrafficcompsinChinaacceleratethroughoutthequarter,withcontinuedstrongmomentumintoOctober.

Asweheadtowardsthe20thanniversaryofStarbucksJapanin2016,ourbrandhasneverbeenstronger,withourbusinessinJapandeliveringanothersolidquarterofcompsalesgrowth.Andnowwithfullownership,wearepositionedtoaccelerategrowthandtoleverageallofourmobileanddigitalcapabilitiesasneverbefore.NoteworthyisthattheCompany-operatedstoresweacquiredinJapanlastyearwillbeincludedinourglobalandCAPcompbasisduringQ1fiscal-year2016.

EMEA'sQ4resultsdemonstratethesuccessofourcontinuedeffortstoimprovetheprofitabilityofourCompany-ownedstoreportfolio,whileatthesametimeaswegrowourlicensebusiness.Excludingapproximately$40millionofFXheadwindsandthetransferof41storesfromCompany-ownedtolicensed,EMEArevenuesincreasedapproximately8%inQ4.Infact,everymajorEMEAmarketpostedpositivecompsinQ4,withtheUK,France,andGermanypostingparticularlystrongcompgrowth.

Comparable-storesalesinEMEAgrew5%,despiteongoingmacroeconomicchallengesinseveralmarketsintheregion,witha3%increaseintraffic,representingEMEA's10thconsecutivequarterofpositivecompgrowth.

OurEMEAlicensedmarketsarecontinuingtoperformexceptionallywell,withTurkeyandtheMiddleEastinparticularcontinuingtooutperform,furthersupportingourlicense-focusedgrowthstrategy.ByQ4,nearly69%ofour2,362EMEAstoreswerelicensed,upfromonly54%fouryearsago.AndweintendtocontinuetogrowourEMEAlicensed-storeportfolio.Thestrategyisworking,asEMEAdeliveredafull37%increaseinoperatingincomeoverQ4lastyear.

Channeldevelopment,Q4revenuesgrew14%overlastyearto$457million,despitecontinuedcompetitivepressuresinat-homecoffeecategories.Wearepleasedwiththestrengthofpackagedcoffeesalesinthequarter,which,combinedwithK-Cupsales,weretheprimarydriversofchanneldevelopmentrevenuegrowth.

OurtotalK-Cupportfoliocontinuestogainshare,despiteincreasedpricingpressureandadditionalnewmarketentrants.Infact,StarbucksisnowtheshareleaderinbothpremiumroastandgroundandtheentireK-Cupsegmentforthefirstquarterever.InnovationhasbeenkeyinestablishingourleadershippositionintheK-Cupcategoryandwe'reexcitedforcustomerstoexperiencethenewhotcocoaK-Cupbeverageplatformthatwerecentlylaunchedwithclassicandsaltedcaramelhotcocoaflavorprofiles.

WehavealsoseenourStarsdown-the-aisleloyaltyprogramdrivingincrementalpurchasesofroastandgroundinfiscal-year2016andweareexpandingtheStarsprogramtoincludeselectStarbucksK-CupSKUs.

FoodservicealsohadastrongQ4,with8%revenuegrowthyearoveryear.Ourbroadproductofferingstothefoodservicetradearebecomingincreasinglyappealingasbusinessescontinuetodifferentiatethemselvesbyprovidingemployeeswithpremiumamenitiesintheworkplace.

Internationally,weareseeingstronggrowthintheChinaAsiaPacificready-to-drinksales.Whilethisisasmallpartofourbusinesstoday,itunderscoresthesizeoftheopportunitypresentedbythestrategicpartnershipweannouncedearlierthisyearwithTingyi.




Wealsoremainontracktolaunchready-to-drinkthroughgroceryandconveniencestorechannelsin10LatinAmericanmarketswithourlong-termbusinesspartner,Pepsico,in2016.

AsHowardmentioned,Starbuckshasafrontrowseatattheintersectionofthephysicalanddigitalworldlikenoothercompany.DatashowsthatMyStarbucksRewardscustomersspendthreetimesasmuchasnon-MSRcustomers.TheStarbucksdigitalexperienceisakeyenableroftheloyaltyprogramthatengagescustomersandprovidesuswithdigitalfeedbacktoconstantlyimprovetheexperienceandattractmorecustomers.Itisavirtuouscycle.

Thepaceofdigitalinnovationisaccelerating.WecompletedtherolloutofMobileOrder&PayinallUSCompany-ownedstorestoanoverwhelmingcustomerandpartnerresponse.WelaunchedtheMobileOrder&PayfeatureonourAndroidappandintroducedadditionalfunctionalitytoprovidereal-timestore-specificmenuandinventoryinformation.Weimprovedpickuptimeaccuracy,alldesignedtoaddconvenienceandimproveourcustomerexperience.

Wehavebegunthedeploymentin150storesintheUKandmorethan300storesinCanada,whileframingplanstocontinuerollingoutMobileOrder&Payinkeymarketsaroundtheglobe.WelaunchedtheStarbucksmobileapp,boththeiOSandAndroidversions,inFranceandGermanyandweareontracktodeployinPoland,CzechRepublic,andKuwaitthisyear--thisquarter.

WehavegrownouractiveMSRcustomerbaseintheUSby28%yearonyear.OuractivemobileusersintheUSandCanadahasgrown32%yearonyear.MobilepaymentsinOctoberrepresentedover21%ofUStender.We'relaunchingdeliverypilotsinNewYorkCityandSeattle.

Inthecomingweeks,wewilllauncharichdigitalmusicexperience,bothinstoreandoutofstore,integratedinourmobileappthroughourpartnershipwithSpotify.

Ourdigitalmomentumisrealandtheroadmapfortheupcomingyearisbold.I'mconvincedthatStarbucksisdoingsomethingveryuniqueandveryspecial.Weoperateaworld-classbricks-and-mortarretailbusinesswithover23,000storesthatisgrowingandwearerapidlybuildingaworld-classconsumerdigitalexperience,poweredbyatechnologyplatformthatcomplementsandextendsthescaleofourbrick-and-mortarbusiness.

Inmy34yearsinthetechnologyindustry,itisdifficulttopointtoanotherinstancewhereanin-storeexperiencehasbeenextendedtoadigitalexperienceinsuchaseamlessandelegantmanner.Manyothersinthefoodandbeverageindustryarenowtryingtofollowinourfootstepsbybuildingamobileapp.FromwhatIhaveobservedinthemarket,Starbuckshasbuiltsomethingthatisdifferentiatedfromalloftheothers.

Whereothersareattemptingtobuildamobileapp,Starbuckshasbuiltanend-to-endconsumerdigitalplatformanchoredaroundloyalty.Thisplatformenablesustodelivernewfeaturesfaster,createamoreintegratedexperience,andpersonalizethoseexperiencesfortheconsumer.Ibelievethisapproachprovidesasignificantdifferentiationfromotherswhoarestrugglingtoreplicatethesuccesswehaveexperienced.

Q42015isareflectionofthegreatworkbeingdonebyourStarbuckspartnersaroundtheworld,whoaredeliveringinnovation,drivingoperationalexcellence,andleveragingthescale,reach,andbreadthofourcapabilitiesandtocontinuouslyelevatetheStarbucksexperience.TheacceleratingmomentumweexperiencedinQ4andunqualifiedsuccessofourlong-termstrategiesforsustained,profitablegrowthhasideallypositionedusforthefuture.

IwillnowhandthecallovertoScotttotakeyouthroughthequarterandouroutlookforfiscal-year2016.Scott?




Scott Maw(CFO):

Thanks,Kevin,andgoodafternoon,everyone.

Starbucks'performanceinQ4reflectedacontinuationofthepatternofacceleratingmomentumwehaveseenwitheachsuccessivequarteroffiscal2015.RevenueandprofitgrowtheachfinishedatthehighendofourQ4estimatesandeachofourfourreportingsegmentsachievedoperatingmargininexcessof15%forthefirsttimeinourhistory,onceagaindemonstratingthestrengthoftheStarbucksbrandandcontinuedexcellentexecutionbyourpartnersacrosstheglobe.

Starbucks'strongQ4resultswereparticularlymeaningfulastheywereachieveddespitesignificantforeign-exchangeheadwindsandboththeincreaseandaccelerationofourpartnerindigitalinvestments,investmentsthatlinkdirectlytoandinmanywaysaredrivingthecompandprofitabilitygrowthweareexperiencing.

KevinhasaddressedmuchofStarbucks'consolidatedQ4performance,soIwillonlycommentthatourGAAPoperatingmargininQ4was19.7%andnon-GAAPoperatingmarginwas20%,upnicelyfromQ3,butdown50basispointsfromQ4oflastyear,duetotheimpactofpartneranddigitalinvestmentsandthechangeinownershipofStarbucksJapan,partiallyoffsetbysalesandcostofgoodssoldleverage.

Nowontothesegments.RevenueandoperatingincomegrowthintheAmericascontinuestobeverystrong.InQ4,Americasoperatingincomeincreased13%yearoveryearto840million--$841milliononan11%increaseinrevenuesto$3.4billion.Andouroperatingmarginexpanded40basispointsto24.8%.

Strongsalesleverageresultingfroma9%increaseinUScompswastheprimarydriverofthemarginexpansion,morethanoffsettingapproximately160basispointsofimpactrelatedtoincreasedpartneranddigitalinvestmentsinQ4.

GAAPoperatingincomeinourCAPsegmentreachedarecord$130millioninQ4,afull25%increaseovertheprioryear.GAAPoperatingmargindeclinedto19.9%from33.5%,primarilyduetotheimpactoftheownershipchangeinStarbucksJapan.Excludingthe15.5percentagepointsoffinancialimpactfromtheownershipchangeinStarbucksJapan,CAP'soperatingmarginincreasedby190basispoints,drivenprimarilybyoperatingsavingsintheregion.

EMEAresultsinQ4wereparticularlystrong,onceagaindemonstratingincreasingmomentuminthebusinessandcontinuedprogressagainstourplantosignificantlyimprovesegmentprofitabilityovertime.EMEAachievedrecordoperatingincomeforthequarter,andwhenexcludingunfavorableFXimpactofnearly$5million,EMEAoperatingincomeincreasedbyalmost50%yearoveryearto$58million,andEMEA'sQ4operatingmarginof17.2%exceededexpectationsandmarkedthesegment'sfifthconsecutivequarterofdouble-digitoperatingmargin.

EMEA's510basis-pointimprovementinoperatingmargininQ4overtheprioryearwasdrivenprimarilybysalesleverage,includingtheimpactofourongoingportfolioshifttomorelicensedstoresandgainsonthesalesofcertainassets.

Channeldevelopmentgrewoperatingincome15%overtheprioryearinQ4to$197million,alsoaquarterlyrecordforthissegment.Operatingmargintotaled43.2%,a20basis-pointincreaseoverthesamequarterlastyear,reflectingasignificantincreaseinincomefromourNorthAmericacoffeepartnershipwithPepsicoandimprovedcostofgoodssoldefficiency,primarilyoffsetbyhighercoffeecostsandmarketingcosts.

BeforeIwrapupQ4andmoveontoabriefrecapofourfull-yearfiscal2015results,Iwouldliketonote




forQ4comparisonpurposestwonon-GAAPadjustmentswemade,inadditiontotheadjustmentswemaderelatedtoouracquisitionofStarbucksJapan.First,asIpreviouslyshared,werefinanced$550millionofhigher-ratedebtinQ4andincurredachargeofapproximately$61million,primarilyrelatedtoanearlyredemptionpremium.Second,oureffectivetaxrateforQ42015reflectsanincrementaltaxbenefitrelatedtocertainadditionaldomesticmanufacturingdeductionstobeclaimedinourUSconsolidatedtaxreturns.

Thesedeductionsareretroactivetofiscal-year2010andloweredourtaxrateforQ4of2015by7.3%relativetoQ4of2014,resultinginaGAAPeffectivetaxrateof27.2%forthequarter.

Starbucksdeliveredexcellentoperatingperformanceandfinancialresultsforthefullfiscal-year2015.Inadditiontorecordrevenueandoperatingincome,wealsodroveoperating-marginexpansionof10basispointsonaGAAPbasisand50basispointsonanon-GAAPbasis,bothaheadofourinitialmarginguidanceprovidedinQ4of2014.

Excluding90basispointsofimpactfromthechangeofownershipinStarbucksJapan,ouroperatingmarginonceagainexpandedbyover100basispointsin2015,drivenbysalesleverage,includingsignificantleverageincostofgoodssold,reflectingtheongoingsuccessofoureffortstodriveefficiencyinthiscriticalarea.

Infiscal-year2015,eachofourreportingsegmentsachievedrecordoperatingincome.

Intermsofoperatingmargin,ourAmericassegmentdrovemarginexpansionof80basispointsfortheyearto24.2%,drivenbystrongsalesleverageanddespitea90basis-pointimpactfromincreasedpartnerinvestments.ChinaAsiaPacificdelivereda20.9%marginfortheyear,significantlyaboveourinitialguidanceforahighteensoperatingmargininCAPthatweprovidedonlastyear'sQ4earningscall.EMEAwasastandout,finishingtheyearwitharemarkable13.8%margin,representingafull460basispointsofmarginexpansionyearoveryearandeclipsingourpreviousgoalofreachingmid-teensoperatingmarginby2018.Andchanneldevelopmentdelivereda37.8%operatingmarginfortheyear,a180basis-pointincreaseoverlastyearandrepresentingourthirdstraightyearformarginexpansioninexcessof100basispoints.

Finally,itisimportantthatIqualifytheimpactofFXinourfinancials.FXnegativelyimpactedbothStarbucksrevenueandnon-GAAPEPSgrowthbyroughly3percentagepointsinQ4and2percentagepointsforthefullyear.

Therecordoperatingandfinancialresultswedeliveredinfiscal2015alsodroverecordcashgeneration,providingthecapitalweneedtoreinvestinourbusinessandincreasethecashwereturntoourshareholders.Infiscal2015,wereturnedarecord$2.4billionofcashtoourshareholdersthroughacombinationofdividendsandsharebuybacks,upover50%from2014levels.Andtoday,weannouncedthatourBoardhasapproveda25%increaseinourquarterlydividendto$0.20pershare.

Asyouknow,Starbucks'performanceandprofitabilityhasbeenconsistentlystrongoverthelastseveralyears.Nonetheless,2015wasanimportant,ifnotpivotal,yearforusfinanciallyandoperationally.Wedeliveredrecordoperatingandfinancialresults,returnedrecordcashtoourshareholders,and,importantly,wefundedseveralverysignificantnewinvestmentinitiatives.

AndIampleasedtoreportthattheseinitiativesarealreadyproducingoutsizedreturnsforourshareholders.Iwouldliketoshareafewmetricstoillustratethispoint.AfteradjustingtoreflectthechangeinownershipofStarbucksJapan,ourreturnoninvestedcapitalincreasedover200basispointsin2015.Whilestillonlyintheearlydays,theinvestmentswehavemadeinMobileOrder&PayandinareassuchasimprovedMSRone-to-onemarketingarealreadydeliveringreturnswellinexcessofouroverallCompanyaverage.




PartnerattritioninourUSstoreshasdeclinedand,asHowardmentioned,wegainedafull3pointsinthepastmonth,bringingourdeltato18pointsversustheindustryonthiscriticalmetric.AndthedataisclearthatourstoreswiththelowestattritiongeneratecompsthatareaboveourCompanyaverage.

Finally,andperhapsmostimportantly,ourcompgrowthintheUSclearlyillustrateshowourinvestmentsaretimedtoperformance.InQ4oflastyear,wedelivered5pointsofcompgrowthwith1pointoftrafficgrowthintheUS.During2015,ourcompsandtrafficacceleratedsequentiallyeveryquarterto9%and4%,respectively,inlockstepwiththerampofourinvestments.Thestrengthinmomentumwesawthroughout2015andareseeingasweenter2016givesustheconfidenceweneedtoincreasethespeedandsizeofourinvestmentsinordertocontinuestrengtheningandexpandingthefoundationofourincreasinglyglobalbusiness.

Importantly,infiscal2016wewillbetakingthelearningsfromtheinvestmentswearemakinginourpartnersintheUStomajormarketsaroundtheworld.Thisnextwaveofpartnerinvestmentwillincludewageandbenefitincreasesandevenhousingbenefitsinsomecountries.Andfollowingonthesuccessoftheinvestmentswearemakinginourmobile,digital,andpaymentsinitiativesintheUS,in2016wewillbeacceleratingtheseinvestmentsbothdomesticallyandinourlargestinternationalmarkets.

Withthisasbackground,Iwillnowturntoourrelevanttargetsfor2016.Consistentwithourlong-termgoals,weexpect10%orgreaterrevenuegrowthona52-weekbasis,withthe53rdweekaddingapproximately2pointstothisgrowth.Importantly,andforthefirsttimeinmanyyears,giventhemomentumweareseeinginourbusiness,weareexpecting2016globalcompgrowthtobesomewhataboveourlong-termmidsingle-digitguidancerange.

Ourconsolidatedoperatingmarginwillincreaseslightlyfrom2015onbothGAAPandnon-GAAPbases,reflectingstrongrevenuegrowth,salesleverage,andincreasedoperatingefficiencyandperformance,partiallyoffsetbytheimpactofincreasedpartnerandbusinessinvestment.

WeexpecttoseeouroperatingmarginintheAmericasincreasedmoderatelyabove2015,reflectingstrongsalesandCOGSleverage,offsetbytheimpactofourinvestments.AndweexpecttoseeflattoslightlydownoperatingmarginsinCAPfrom2015levelsasincreasingsaleslevelsinChina,Japan,andacrosstheregionisoffsetbythelastbitofimpactfromtheacquisitionofStarbucksJapanandthecontinuingimpactofnegativeFXheadwinds.

Noteworthyisthatourprojectedoperatingmarginofapproximately20%inCAPisaboveourinitialexpectationsforyeartwowhenweclosedtheJapanacquisition.

Andweremainbullishontheopportunityforfuturelong-termmarginexpansioninCAP.Q1CAPmarginisexpectedtobelowerbyseveralpointsthanQ1of2015,primarilyduetolappingtheimpactofthechangeinourownershipofStarbucksJapanandthenegativeimpactofFX.

Also,giventhecomplexityofmodelingtheimpactoftheownershipchangeinJapan,IwouldliketoprovideadditionalcoloraroundourCAPrevenueexpectationfor2016.Overall,inFY16weexpectCAPcompstolandinthemid-singledigits,includingtheimpactofaddingover1,000storesinJapanintothecalculation.AndprojectedrevenuegrowthinCAPwillbeinthemid-teens,reflectingexcellentgrowthinallofourmajormarketsandasmallbenefitfromthechangeinJapanownership,partiallyoffsetbyongoingFXheadwinds.

WeexpectouroperatingmargininEMEAtoapproach15%fortheyearaswecontinuetorealizethebenefitsofincreasedmomentuminkeymarkets,strongexecutionbytheteam,andtheongoingbusiness-modelshiftfromCompany-ownedtolicensedstores,andsalesleveragewilldrivemoderatemarginexpansioninourchanneldevelopmentsegment,thoughlessthantheverystrong180basis-pointexpansionwesawin2015.




Asaresultofbothstrongoverallrevenuegrowthandmarginexpansion,weexpectGAAPEPSintherangeof$1.84$1.86andnon-GAAPEPSintherangeof$1.87to$1.89,includingthe53rdweekwewillreportoninthefourthquarterof2016.

AfewspecificsaboutourEPSguidance.The53rdweekaddsapproximately$0.06toour2016EPSestimate.Ourexpectationsofcompgrowthbeingsomewhatabovemid-singledigitsisfactoredintoour2016EPSestimate.Weexpecttheyear-over-yearincreaseinglobalpartneranddigitalinvestmentsin2016willbebetween$100millionand$125million,impactingourEPSgrowthratebyapproximately3points.

Ourtotalglobalinvestmentintheseareasin2016willlandbetween$250millionand$275million,comparedtoapproximately$145millioninfiscal2015.Themajorityofthe2016initiativeswillbeintheUS,butwillalsoincludeglobalinvestmentsincertainincreasedpartnerbenefits,digitalandtechnologyinvestments,andG&Acosts.

FXisexpectedtoimpactrevenuegrowthby1percentagepointandEPSgrowthby2percentagepoints.Commoditiesimpactisslightlyfavorablefortheyearnowwithover90%ofour2016coffeecostslocked,and,finally,oureffectivetaxratefor2016willbebetween34%and35%.

Givenalltheseinputs,whenadjustingour2016non-GAAPEPSrangefortheextraweekbysubtractingthe$0.06,ourgrowthrateversus2015non-GAAPEPSof$1.58willbeatorslightlyabove15%.

ForQ12016,wearetargetingGAAPEPSintherangeof$0.43to$0.44andnon-GAAPEPSof$0.44to$0.45,representingalowergrowthratethanthefullyear,assignificantFXheadwindsinQ1of2016willimpactnon-GAAPEPSgrowthby4fullpoints.Also,Q1growthwillbeloweraswestartedimplementingthevastmajorityofour2015partneranddigitalinvestmentsinearnestinQ2oflastyear.

GivenourQ12016growthrate,weexpectnon-GAAPEPSgrowthintheremainingthreequartersof2016tobeinthemiddleofourlong-termguidancerange.

Contributingtoourrevenuegrowthinfiscal2016willbetheadditionofapproximately1,800netnewstoresglobally.In2016,70%ofournetnewstoreswillbeoutsideoftheUS,withtheentireAmericassegmentaccountingforatotalof700stores,splitroughlyevenlybetweenCompany-ownedandlicensed.OurChinaAsiaPacificsegmentwilldriveroughlyhalfofournewstoregrowthwith900netnewstores,two-thirdsofwhichwillbelicensed.AndourEMEAsegmentistargeting200netnewstoresinfiscal2016,virtuallyallofwhichwillbelicensed.

Finally,capitalexpendituresinfiscal2016areexpectedtobeapproximately$1.4billion.

2015wasanotherexcellentyearoffinancialperformanceforStarbucks,asdemonstratedbyrecordresultsandsignificantincreasesintotalshareholderreturn,returnoninvestedcapital,andcashreturnedtoshareholders.In2016,Starbuckswilldeliverapproximately$21billioninrevenue,operatecloseto25,000stores,andgenerateanoperatingmarginapproaching20%.AnddespitethescaleandscopeofourCompany,wewillalsodeliveronceagaindouble-digitrevenuegrowthandnon-GAAPEPSgrowthofatleast15%whenexcludingthesetimpactfromthe53rdweek,consistentwithourlong-termtargets.

Thegrowthweareexperiencingandthereturnswearedeliveringaremadepossiblebytheinvestmentswearemakinginourpeopleandinourbusinessandthededicationandhardworkofourpartnersaroundtheworld,whonowdeliveranelevatedStarbucksexperiencenearly80milliontimeseveryweek.

Withthat,IwillturnthecallbacktotheoperatorforQ&A.Operator?

QUESTIONS&ANSWERS




Operator :

(OperatorInstructions).JohnIvankoe,JPMorgan.

JohnIvankoe (Analyst-JPMorgan):

Thequestionmightbealittlebitobvious,butHoward,inthelastconferencecall,andIthinkveryrightly,youtoldusnottoexpectmidsingle-digitcompsandyoutolduscertainlynottomodelmorethanmidsingle-digitcomps.So,intermsofexpressingthat,youexpecttohavesomewhatabovemidsingle-digitcompsforfiscal2016.Thequestionhastobeasked,whatspecificallychangedmayberelativetohowyouthoughtthreemonthsagowhenyoutoldusnottothinkaboutanythingabovemidsingle-digitcomps?

AndisitMobileOrder&Paythat'sreallygettingthesignificanttractionintheUSthatisgivingyoutheconfidencetodosowellonextremelydifficultcomparisonsorisitotherfactorsthatyou'dliketodiscuss?


Icertainlywas--Iwasexpectingthatcall,butnotrightoutofthegate.

Solet'sjustwalkthroughthistogether.Throughoutthecalendarandfiscalyear,wesawanaccelerationoftrafficandcomp-storesales,andIthinkifyougobackayearago,weareat5and1,andifyoulookat9and4intheUSandwhatwehavedonesequentiallythroughouttheyearandyoucouplethatwiththeinherentmomentumandattachmentthatweareseeingfrommobilepayment,MobileOrder&Pay,andspecificallytheintegrationasKevintalkedaboutandtheattachmentofloyalty,wehaveenoughvisibilityinthebusinesstobetransparentwithyouthatwebelievethatwearegoingtoseesomeincrementalityinouroverallcomp.

AndIthink,justlikeIhavesaidintheyearspast,wewanttobeverystraightforwardandtryandunderpromiseandoverdeliver.Ithinkweareattheinversehereandwejustfeelitisimportanttobestraightforwardandtellyouthatwethinkourcomp,althoughitisreallyananomalyinthismarket,isgoingtobesomewhatgreaterthanwhatwehavehadthiscalendaryearandfiscal2015.

Iwouldnotjumptoconclusionandsayit'sgoingtobesignificantlygreater,butwehaveenoughvisibilityandIthinksignificantattachmentandresponsefromourcustomers,basedonin-storeexecution,theinvestmentswehavemadeinourpartners,asScotthasreallyarticulated,hashadasignificanteffectonourrelationshipwithourcustomers,andallthesethingsareladderinguptoaperformance.

Imean,whenwesawthequarterheadtowards9%compsintheUS,givenwhereallofUSretailis,wheretheeconomyis,wherebricks-and-mortarhasgone,thechangein--seismicchangeinconsumerbehaviorandeveryoneelseinourpeergroup,notonlyisitastunningnumber,butitisanumberthatdoesnotexistanywhereintheworldatourscale,atourcomplexity,andwethinkwearegoingtodobetterthanthemidsingle-digitguidancethatwe'vegivenyouthelastfewyearsandwethoughtitwasresponsibletosharethatwithyou.


AndifIamstillon,Howard,itiscertainlystrikingtohearyourapproachtolaborinfiscal2016inthistighteningeconomy,andmaybejuxtaposethatalittlebitwithStarbucks'experiencemaybeinthelate1990sand2006,2007whereyoudidparticipateinverytightlabormarkets.So,isittosomeextentlessonlearnedfromyourperspectiveofjusttheimportanceofhavingtherightpeopleandcompensatingthemandmakingsurethatturnoverisstayinglow,orhowwouldyoudescribethiscurrentlabormarketrelativetoothertighteningandexpensivelabormarketsthatStarbuckshasseeninthepast?





IthinktheequityoftheStarbucksbrandthroughoutourpubliclifehasbeendefinedbythecultureandvaluesandguidingprinciples.Ihavesaidfromdayonethatweareintheexperiencebusinessandourbrandisdefinedbythepeoplewhowearthegreenapron.

TheentireDNAoftheCompanygoesbacktoequityintheformofstockoptions,comprehensivehealthinsurance25yearsaheadoftheAffordableCareAct,andthisyearaloneagroundbreakingbenefitofcollegeachievementofprovidingallofourpeoplewithafour-yeareducation.

So,Ithinkwhatwehaveseenisthatothercompaniesarereactingandplayingcatch-uptolegislation,wherewehavealwaysbeenaheadofit,andthetighteningofthelabormarketisnotsomethingthatwewanttodealwithoruseasanexcuse,justlikewedon'twanttotalkaboutweather.Andso,westronglybelievethattheinvestmentswehavemadeaheadofthecurveonlegislationintermsoflaborandthebenefitsthatwehaveprovidedformany,manyyearsisanintrinsicpartoftheStarbucksexperience,andthebrandaffinity,theloyalty,andallthethingsthatwearedoingarelinkeddirectlytotheinvestmentswehavemadeinourpartners.

AndIthink,asScottsaid,wecangiveyouevenmorespecificsthatdemonstratethatthereturnoninvestmentofthesebenefitsisdramaticallyaffectingreturnoninvestmentofnewstores.Yousawthatinthe$1.4millionfirst-yearstores,thereturnoninvestmentoncomp-storesales,andtheincrementality.Thereisnooneontheplanetdoing4%trafficatourscale,especiallywhenyouconsiderthatwehaveself-cannibalized--Idon'tknowwhatthepercentageis--probably20%,30%,40%ofourstorebasethisyearalone,andnoeffect.

Wearedrivingincrementalityinalldaypartsandourpeople,inmanyways,areresponsibleforitandwewanttoinvestinthemandwiththem.AndIthinktheperformancejustshowstheresult.


(technicaldifficulty)much.

Operator :

SaraSenatore,Bernstein.

SaraSenatore (Analyst-Bernstein):

Iwantedtoaskalittlebitmoreaboutdigitalanditisatwo-partquestion.OneisobviouslyMobileOrder&PayextremelysuccessfulandIthinkweseethatinthefactthatyou'rerollingoutsoquicklyelsewhere.Iwaswonderingifyoucouldtalkalittlebitabouttherelativeimpactontrafficversusticket.Obviously,bothnumbersveryimpressive,butevenalittlebitmoreoutofticketthatImighthaveexpected.Sothat'spartone.

Andparttwoismaybeyoucouldtalkaboutfurtherpartnerships,soyoutalkedaboutSpotifyandLyftandtheNewYorkTimes.Couldyoushareyourplansforexpansionthereandwhenwemightexpectthistobemaybeevenamaterialcontributortooperatingresultsfromafinancialperspectivethatyouactuallycalloutseparately?Thankyou.


Yes,thanks.Let'shaveAdamcommentonMobileOrder&Payfirstandthenwewilltaketheothertwopartsofyourquestion.

AdamBrotman (Analyst-ChiefDigitalOfficer):




ThisisAdam.OnMobileOrder&Pay,acoupleofthingstomention.Firstofall,beforewegetintospecificsonticketandtransaction,itisworthreiteratingMobileOrder&Payispartofabroaderplatformthatincludescard,loyalty,mobilepayments,digitalengagement,andnowmobileordering.Andwe'reabouttoadddeliveryandmusic.

So,nootherconsumerretailerhasputtogetheraplatformlikethisandMobileOrder&Payisprovingoutwhatwethought,whichisthatwhenyougettheflywheeleffectofsuchasuccessfulplatform,youseetheresultsthatyouseefromMobileOrder&Pay.

Nowspecificallytoyourquestion,weareseeingincrementaltransactionsfromMobileOrder&Pay,particularlyinourbusieststores.Wearepleasedwiththeresultsacrossallofthetiersofourstores.Ticketrightnowisholdingsteadyandisdoingquitewell,consistentwithourotherMSRticket,andwehaven'tevenaddedthefeatureofsuggestedsellingandsuggestedpairing,whichwe'regoingtodointhefirsthalfoftheyear.Soweexpecttoseethatincreaseontopoftheincrementaltransactionsthatweareseeing.


Letme--thisisKevin.IwilljustaddtoAdam'scommentsaboutwhat'sdrivingourcomps.Ithinkthereisthreekeythings.Numberone,Howardmentioned,istheinvestmentswemadeinourpartnersandthefactthatwe'vereducedattritionisallowingourpartnersandstorestobetterconnectwithourcustomersandweknowthatyieldsbetteroutcomesintermsofcompgrowth,andsothat'snumberone.

Numbertwoisourinvestmentinfoodandbeverageinnovation.Infact,ifyoulookatthecomps,3pointsofourcompgrowthcamefromfood.Ourbreakfastsandwichbusinesshasdoubledinthepastthreeyears.Lunchisaccelerating.Wenowhaveeveningsprogramdeployedin100stores,soitisearlydaysonevenings.Butwehaveseengrowthineverydaypartasaresult.

Onthebeverageside,thataccountedfor6%--6pointsofcompgrowth,andsoinnovationcertainlyaroundthingslikeColdBrewcontributedtoitandverygoodresultswithouricedbeverages,includingtheTeavanaShakenIcedTeas,whichgrew20%yearonyear.

Soinadditiontotheinvestmentinpartners,itistheinvestmentinfoodandbeverageinnovation,andthenfinallyistheinvestmentindigitalandloyalty.Infact,weknowthatMSRcustomersonaveragespend3timesasmuchasnon-MSRcustomersandwehavegrownthenumberofactiveMSRcustomersby28%yearonyear.

Sotheinvestmentswearemakinginourpartners,foodandbeverageinnovation,anddigitalandloyaltyarekeydrivers.


Therewasonequestionaboutpartnerships,futurepartnerships,Matt,doyouwanttotakethat?

MattRyan (Analyst-GlobalChiefStrategyOfficer):

Sure,it'sMattRyan.Wehaveonlyjustbegunwithourpartnershipbusinessregardingloyalty.Andwhilewehaveannouncedthreespecificdeals,therearemanymoretocome.We'reintheprocessofbuildingcapabilitytoofferStarseverywhere.ThatistheopportunityforcustomerstoessentiallyearnStarsatalotofdifferentplacesandtakethembacktoStarbucks.Thatisgoingtobeleverinourbusinessinthefutureandthathasnotyetimpactedourbusiness,butwill.

Inaddition,aswenegotiatethosedeals,wearegoingtohaveadditionalbenefitstobothourcustomersandourpartners,whichwillaccruebacktousintheformofloyaltyanddeepenedengagements.Sowe




arevery,verybullishonthat.Wedon'thavespecificannouncementstoday,butstaytuned.

Operator :

KeithSiegner,UBS.

KeithSiegner (Analyst-UBS):

Howard,inthepastcoupleofyears,youhavetalkedabouttheseismicshiftintheretaillandscapeandhowyouweregoingtostrategizeagainstthat.IfyouthinkaboutthesuccessoftheMobileOrder&Pay,thiswholeplatformthatitisintegratedinto,deliveryandinevitability,next-genfeaturesyousaidarealreadyinsight.Whenyouthinkaboutthatrealestate,thatphysicalassetbasethatyou'vetalkedaboutanditsroleinservicingthatrelationship,doesthischangeorcouldthischange?Canyouexploitsomeofthatrelationshipandcomeupwithanewordifferentwaytoevenfurtherdeepenthatrelationshipwithconsumers?Howdoyouthinkaboutthat?Thanks.


Asyouallknow,IthinktwoyearsagoorsowesharedwithyouthatwehadbeguntowitnessandgetquiteconcernedaboutadownturninpedestriantrafficonMainStreetandcertainlyadownturnintrafficinmalls.

AndIthinkifyoulookattheretailersthataresucceeding,Iamnottalkingaboutthepeopleinourcorebusiness,butallretailersanywhereintheworld,ithastobeanexperientialemotionalexperiencewheretheretailexperienceisreallyexceedingtheexpectationofthecustomer.

Andso,wewentbacktoworkonthat,andIthinkwealsobelievedverystronglythatwehadtoseamlesslyintegratetheStarbucksexperiencewithallthingsmobile.AndasIsaidinmypreparedremarks,we'relivinginamobilefirstglobaleconomyandwearewitnessingthatkindofchange.

Withregardtothephysicalshape,size,andwhatwedoinourstores,Ithinkwedobelieve,andIcan'tgivetoomuchawayhere,thatweareinapositionwhereweareineverysingleoralmosteverysinglecommunityinAmericaandalmost--youcanalmostmakethatstatementintheworld.Andasaresultofthat,wearebothinterceptinganddrivingtrafficintoourstores.Andwecertainlyare--haveoneoftheworld'sstrongestrealestateportfoliosintermsofwherethosestoresarelocated.

Soweare,Ithink,askingourselvestheveryimportantquestion,whatelsecanwedoinourstores?AndIthinktheoperativeissuehereisrelevancy.Wehavebecomeanextremelyrelevantbrand,andasKevinjustoutlined,three,fouryearsagoallthedaypartsthatwearenowengagedin,wedidnothaverelevancy.Wedidn'thavetherightproductandwe'recertainlynowlookingatthephysicalspace,whatitiswe'reselling.

AndIwillsharesomethingelsewithyou.It'sbecauseoftheamountoftrafficwehave,themillionsofpeople,andthefactthatthecorecustomerisamillennialcustomer,themostimportantconsumerintheworldtoday,wehavemany,manycompanieswhowanttopartnerwithusandintegratetheirproductsorservicesintotheStarbucksexperience.Andspecifically,certainlytheywanttodothatintermsofwhatwearedoingintermsofmobiletechnology.

Sotheseareearlydaysofusansweringthatquestion,butIthinkyoudidhitanerveherebysayingthatStarbuckshasaphysicalassetalmostsecondtonone,andwhenyoucombinethatwithwhatwehavebeenabletodoinleveragingthatwithaseamlessdigital/mobileexperience,weareinaveryuniquepositiontowin.AndIwouldsaywe'reashungrytodayasweweretwoyearsagowhenwerecognizedtheproblemandwerechallengedbyit.Wecertainlyfeelwehaveovercomeitandwearewinning,butwearehungriertodaytomakesurethattheseparationwecreateinthemarketplacebetweenusand




everyoneelsegetswider.

Operator :

SharonZackfia,WilliamBlair.

SharonZackf ia(Analyst-WilliamBlair):

IwantedtotouchonthelaborinvestmentthatyoumadeintheUS.Ithinkyoutalkedaboutmakingmoreofaninvestmentgloballyaswell.Canyoudimensionalizetheorderofmagnitudeoftheinvestments,bothintheUSthatyouhavealreadydoneandmaybeongoinginvestmentsinto2016,bothintheUSandoverseas?

Scott Maw(CFO):

Thanks,Sharon.It'sScott.Sothetotalamount,asImentioned,isbetween$250millionand$275million.Thevastmajorityofthat,again,willbeintheUS.

Ithinktheimportantpartisthereissomeamountthatwillhappenoutintheregions,muchsmallerdollars,butthatincludesnotonlypartnerinvestmentssuchaswageandbenefit,butitincludesanaccelerationofsomethingswewanttododigitallyaroundmobile,aroundloyalty,andaroundplatformsingeneral.

SoIthinkthewaytothinkaboutitisthevastmajorityintheUS,abitintheotherregions,andaswegothroughtheyearifthosenumbersbecomesignificant,wewillgiveyouanideaofhowtheylandedbysegment.

Operator :

DavidPalmer,RBCCapitalMarkets.

DavidPalmer (Analyst-RBCCapitalMarkets):

WhatcustomerandpartnerfeedbackareyougettingonMobileOrder&Paysofar?Inwhatwaysyouthinkyoucanimprovetheapporadjustoperationstomaketheexperienceevenbetter?

Andjustseparately,biggerpicture,Ithinkyousaid21%ofordersweremobilepaymenttosomedegree.Itmightbestrikingtoyouinternallyasanopportunitythatfouroutoffiveordersarenotusingthebenefitsofmobilepayormobileorder.Areyouthinkingaboutwaysthatyoucanfurtherdrivepenetrationtogetthemintothisdigitalecosystemthatyouhave?Thanks.

Clif f Burrows (Analyst-GroupPresident):

Thanks,David.ItisCliffhere.Ithasbeenincredibletoseetheadoptionbycustomersacrossthecountry,andwitheachwavethatwehavelaunched,therampratehasbeenquickerforadoption.

Ithinkwhatismostexcitingisourhighest-volumestoresaretheonesthatareseeingthebiggestsharecomefrommobileorders,andwhatishappeningwiththatisitincreasescapacityinthestoreitself.Soweareseeingtwowinsonthis.Weareseeingtheadoptionofmobileordersandweareseeingincreasedcapacityinthecorestores.

So,everypartofthecountryisnowliveandweareseeingactivityformobileordersineverypartofthecountry.IcouldspeakbrieflytoCanadawherethatadoption,focusedinToronto,hasmirroredwhatwehaveseenintheUSanditjustbodesreallywellforthefuture.Adam,doyouwanttotalkabouttheincreasedoffer?





Yes,thanks,Cliff.ThisisAdam.David,justtobuildonwhatCliffsaidintermsofsomeofourbusieststores,particularlyineitherhospitalsordowntownlocations,letmegiveyousomeexamplesofthat.

Yesterday,WorldFinancialCenterinNewYorkCitydid150mobileordersforover10%oftheiroveralltransactions.DukeEnergyCenterinCharlotte,NorthCarolina,hasbeendoingincrediblewithMobileOrder&Pay.Theydidover234mobileordersyesterdayfor20%oftheirtransactions.ClevelandClinicinabusyhospitalwheretheconvenienceofwhenyouareonbreakandyoudon'thavealotoftimeandyouwanttojustgetyourmobileorderandgetout,incrementaloccasionsbeingdriventhere,269mobileordersfor11%oftheirtransactions.

So,theseareinourbusiesttier.ItgivesyouanexampleofhowpleasedourcustomersandstoresarewithMobileOrder&Pay.Customersarerespondingincrediblywell.Weareseeingconversionratesfromtriallikewehaveneverseenbefore.We'reseeingsomeofthebestcustomersatisfactionscoresforMobileOrder&Pay,particularlyaroundcustomerconnection,whichisagreatindicatoroffuturebusiness,sowearereallyhappywithwhat'sgoingonthere.

Andintermsofwhatarewegoingtodotocontinuetoimproveitandhowarewegoingtogetevenbetteradoption,that'sabsolutelyinourplan.Firstofall,weareconstantlyimprovingtheestimatedpickuptimealgorithm.Samewithstoreinventory.We'veenhancedourabilitytodisplayaccuratestore-levelmenuandinventoryavailabilityandwe'rechock-fullofgreatnewfeaturesthatarecomingfromMobileOrder&Pay,includingtheability,likeImentionedearlier,forsuggestedselling,whichshoulddrivenotonlycustomersatisfaction,butalsobiggerticket.

You'regoingtoseetheabilitytoredeemyourloyaltyrewardsandfavoritestoresandfavoriteorders,sothat'sjustthebeginningofwhatwearegoingtodotoimprovenotonlyadoption,buttheexperience.


AndIcouldjustaddonething,whichIthinkisimportant,wehavealwaysviewedourselvesasmerchants,andwhenwethinkaboutthedigitalexperienceandthemobileexperiencewithregardtomobilepaymentandMobileOrder&Pay,themostimportantthingthatwe'vetriedtoconsideristhecustomerexperienceandasmerchantswhatcanwedotosurpriseanddelightthecustomersothatthemobileexperienceandthedigitalexperienceisnotsomethingthatisdilutive,butactuallysomethingthatisaccretive.

AndIthinkasKevinsaidinhisremarks,Ithinkallthoseplayersthatarenowtryingtogetintothisbusiness,whatInoticeisthatitisreally--theyareintheutilitybusiness.Theyareinthecommoditydigitalexperience.Thatisnotwhowehavebeenasaretailerandthat'snotwhowearegoingtobeasadigitalpurveyoroftheStarbucksexperience.

Operator :

JohnGlass,MorganStanley.

JohnGlass (Analyst-MorganStanley):

IthoughtIwouldmaybegoinaslightlydifferentdirection.IwantedtojustaskaboutCAPandthecompsbeing6%.Theyhadbeenstrongerinpriorquarters,traffichavebeenstronger,soIamjustwonderingwhatthatdecelerationwas,whereitcamefrom?YoutalkedaboutChinabeingstrong,soIwasn'tsureifitwasmaybeexChina.MaybeyoucanputalittlemorecoloraroundwhatisgoingoninChina,sincethatseemstobeacontroversialareanow.




JohnCulver (Analyst-GroupPresident):

ThisisJohn.LetmejusttalkalittlebitaboutChinaandwhatweareseeinginChina.

Andfirst,letmejustbeveryclearthatourbusinessinChinaandacrossCAPremainsvery,verystrong.Youlookatthemomentumthatwehavebeenabletobuild;wehaveseennosystemicslowdowninourbusinessinChina.Aswediscussedonthecall,ourperformanceintermsofcompinChinaacceleratedabovethetotalregion,andwhenyoulookatthecompbreakdownnotonlyinChina,butthenalsoacrosstheregion,thisisallbeingdrivenbytransactions,whichisphenomenal.Itmeansthatweareattractingmorenewcustomersintoourstoreseveryday,aswellasatthesametime,continuingtobuildfrequencywithourexistingcustomers.

Inaddition,whatwesawduringthequarterwasthatcompsactuallyacceleratedmonthtomonth,andinChina,weseethatcompsarecontinuingtoaccelerateintothemonthofOctober,whichisgreatnewsforus.

JustletmetouchonChina,becauseIknowthere'salotofquestionsoutthererightnow.Today,weoperate1,800storesacross95cities,andwhenyouthinkbacktotwoyearsago,wehada1,500-storetargetinChinabytheendof2015.Wearesignificantlyaheadofthat1,500-storetargetwithover1,800stores.

Inthequarter,weopened135newstoresinChina.That's1.5storesperday,whichisactuallyaheadofthe1.2storesthatweaveragedfortheentirefiscalyearof2015.AndwhenyoulookatthenewstoresthatweareopeninginChina,wehavethebestageclassperformanceinournewstoressince2012.AndwhenyoubreakdownthetotalgrowthacrossCAPandreallyacrossChina,75%ofourrevenuegrowthisbeingdrivenbynewstores,25%isbeingdrivenbycomp.

Andwhatwecontinuetodoisfocusoninvestingaheadofthecurveasitrelatestoourpeople,thedigitallandscape,IT,storedevelopment,supplychain,andcontinuingtoelevateourcoffeepositioninthemarketplace.

So,again,wearejustveryoptimisticabouttheopportunitythatCAPpresentsandmorespecificallywhatChinapresents.

Operator :

DavidTarantino,RobertW.Baird.

DavidT arantino (Analyst-RobertW.Baird):

Goodafternoonandcongratulationstoallofyoufordeliveringgreatresults.Myquestion,Scott,istwofold.First,ontheinvestmentsthatyouaremakingoraretheincrementalinvestmentsyou'remakingintothebusiness,arethosestructuralinnature,meaningtheywillcontinuebeyond2016orarethereanyonetimeinnature?

Andthen,Iguess,thesecondpartofmyquestionisjusttheflow-throughtothemarginthatyouareanticipatingin2016onthecompsyouareexpecting.Itlooksalittlelowonthesurface.Isthereanythinggoingonoutsideofsomeofthefactorsyoumentionedthatwouldpreventtheflow-throughdowntothebottomlinein2016?

Scott Maw(CFO):

Thanks,David.Onthefirstpartofyourquestion,Ithinkwhatwehavedonein2015andheadinginto2016isactuallyacceleratetheinvestmentsaswe'vemovedthroughtime.




Sowehadanumberaswestartedtheyearin2015,andeachquarterweactuallyleanedinalittlebitmoreandwearedoingthatagainin2016.AndIthinktheremaybesomeofthatthatcontinuesasweheadinto2017,butobviouslyaswehavechangedourplansaswemovedthrough2015,wewillupdateyouaswegetinto2017.

SoIdothinkwe'reinanacceleratedinvestmentmodenow.Atsomepoint,thatwilltailoff,butIthinkthebestwayforyoutothinkaboutitisaswemovethroughtime,wewillletyouknow.Whenweseeopportunitiestoaccelerate,givenwhat'shappeningonthetopline,wewillleanin,wewillspendmore.Wewon'thesitatetodowhattherightthingis,andsoIthinkthebestthingforyoutodoisjusttrackwithusaswegothroughtime.Ifeelgoodaboutwhatwehavefor2016;aswegetinthroughtheyear,wewilltalkabout2017.

Onflow-through,Iwouldsaypartoftheflow-throughthatyou'rementioningisdrivenbyexactlywhatI'mtalkingabout.Sowearedefinitelyinvestingaheadofthecurve.Sothereisalittlebitofadvancedandacceleratedinvestmentthatishavingsomeimpactonmargin.

ButIjustwanttogobacktothecommentsImadeonthecallthatarereallyimportant.Alotofwhatyouareseeingforthefull-yearmarginandEPSgrowthguidanceisreallyaresultofwhat'shappeninginthatfirstquarter,drivenbysignificantFXimpact,whichimpactstoplineandbottomlineandmargin,anddrivenbythefactthatwedidn'treallystartourpartnerinvestmentsuntilJanuaryoflastyear,sothatmathisimpactingthewholeyear.Asyougetthroughtotherestoftheyear,youcomebackupintothemiddleofourrangeonanon-GAAPbasis.

Operator :

KarenHolthouse,GoldmanSachs.

KarenHolthouse (Analyst-GoldmanSachs):

Congratulationsonthequarter.Iwanttoactuallyaskaquestionaboutfood,whichwas3%ofcompgrowth,insteadof2%ofcompgrowthonalargerbase.Lunchisaccelerating.Certainlysomedatapointstheretofeelgoodabout.

Asithasbecomeabiggerpartofthebusiness,outsideofthebreakfastdaypartI'mcuriouswhatyou'relearningintermsofmerchandising,productsthatpeopleareusing,grabandgoversusthingsinthecase,andjustwhatyouhavelearnedsofarthatcanhelpyoucontinuetogrowandbuildmomentuminthatpartoftheday?


Thanks,Karen.It'sCliff.We'rereallypleasedwithwhatweareseeingwithfoodandfoodacrossthedayparts.Thestrengthofbreakfastsandwiches,asKevinmentionedearlier,wehaveseenthatbusinessdoubleoverthelastthreeyears.Andthatisquitesignificantforus.

Wearealsonowintotestinglunchandweareseeingbothgreatreactionfromthecustomersaroundtheoffering,BistroBoxes,paninis,andtheenhancementofoursandwichrange.

Andeveningsis--itis100storesnowandwearegoingtoopenseveralhundredmoreduringtheyearwiththeeveningsprogram,andthatisgivingusadaypartwherenotonlyistherewineandbeerandourstandardbeverages,butthereisalsothisopportunityforsharingplates.

Sothedayparts,weareexcitedaboutweareabletooffertocustomers.Atthesametime,weareincreasingtheintroductionofwhatwearecallingWallofChill,whichisourgrab-and-gofoodpresentation,whichinhigh-volumestores,certainlyintheurbanlocations,notonlydopeoplebuy




productsforbreakfast,buttheyalsooftenbuysomethingtotakewiththem,liketheBistroBoxes.So,portabilityisimportant.

Foodisgrowingbothinourstoreandthroughthedrive-throughlanes,andwithwhatAdamwastalkingaboutonMobileOrder&Pay,ourabilitytoofferpeopleatastorelevelthefoodrangethatthatstorehasandovertimeamuchmoredynamicsuggestivesell,plusrespondingtothein-stockposition,allofthosethingsbodereallywell.Wehaveseenfoodgrowthroughthat3%compto20%ofthemixinUSstoresandweseethatincreasingovertimetothemid-20s,butobviouslybeveragewillstilldriveit.Andwewilljustkeepinvesting,keeplearning,andkeepgrowingit.

Operator :

AndrewCharles,CowenandCompany.

AndrewCharles (Analyst-Cowen):

Adam,withMobileOrder&Payanddeliverycomingsoonandthemarketingopportunitiesthesehave,doyouviewstraight-upmobilepaymentassomethingultimatelytobecomeobsoleteordoesitstillhaveitsplace,giventherobustcustomerdatayoureceivefromit,aswellastheconvenience?


Ithink,thisisAdam,no,mobilepaymentisnotgoingtobecomeobsolete,althoughmobileorderingisaformofmobilepaymentandwearegoingtoseeasignificantnumberoftransactionsmorphover.

Butit'sreallythespectrumofofferingcustomerswhattheywant.Iftheywanttheconvenienceofmobilepayment,mobileloyaltyengagement,wearegoingtocontinuetoofferthatandinnovateonthat,andasmobileorderingbecomesmoreandmorepowerfulandmoreandmoreprevalent,you'regoingtoseesomeofthatshiftover.

Iwilltellyouthatwesawrecordmobilepaymentslastweek,andasKevinandHowardmentioned,over21%ofourtransactionsarestillmobilepaymentanditisgoingstrongintermsofbothmobilepaymentandnowmobileordering.

Operator :

JeffBernstein,Barclays.

Jef f Bernstein (Analyst-BarclaysCapital):

Justhadfollow-upquestionsonChinaAsiaPacificregion,maybejustatwo-partquestion.One,intermsoftheunitpotential,Iknowyouaretalkingaboutacceleratingthat,I'mjustwondering.Itlookslikethisyearyou'retalkingabout900units,upslightlyfrom--Ithinkyouguidedlastyearto850.SoI'mwondering,whatisthegatingfactorthatmaybefastergrowth--IguessitisprimarilyinChina--whetheritispeopleorrealestate?Itdoesn'tseemlikeitisdemand,andIamsensitivetoaskingthisbecauseIknowaboutpriorconcernsofgoingtoofast,butthefirstpartofthequestionwasjustonwhat'sthegatingfactor.

AndtheotherpiecewasjustbroadlyaroundChina,justasyoubuildthatbusinessandonedayitwillbethebiggestbusinessoutsideoftheUS.Canyoujusttalkaboutthesuccessyouareseeinginshiftingcustomers,whetheritispushingthemfromp.m.toa.m.orshiftingthemfromteatocoffee,justhowyouareconvertingthosecustomersintomoreofthetraditionalStarbuckscustomer?Thanks.





ThisisJohn.Thanksforthequestion.First,intermsofthegrowthratearoundstores,wewillopenapproximately900storesacrossChinanextyearandwearewellonourwaytodeliveringthe3,400--or3,500-storetargetby2019.

Wecontinuetobeverydisciplinedinhowwearelookingatrealestate,howwe'rebuildingthestores,and,moreimportantly,howwearecreatingthatexperienceforourcustomersandreallytakingthelong-termviewonthat.

Whenyoulookatthesuccessoftheportfolio,particularlythispastyear,butmoreimportantlyaswellinyearsprior,theportfoliocontinuestoperformverystrongandwecontinuetolaythetracksaroundtheinfrastructuresothatwecancontinuetoaccelerateinthefuturenewstoregrowth.So,again,weremainveryoptimisticaboutthat.

Wecontinuetofocusonpeopleandbringingintherightpeople,trainingourpartners,andgivingthemthetoolsthattheyneedinordertobesuccessful.

Intermsofthecustomersandshiftingthem,whatweseeisthatthemajorityofourbusinesscontinuestobeintheafternoonandeveningsinChina.Butmoreandmore,weareseeingthatmorningritualcomeintoplay.Wehavesomeinvestmentsinthebusinessthisyearintheplanaroundfoodandbuildingoutthecapabilityaroundfoodandparticularlythemorningdaypart.

Inaddition,weseedigitalasakeycomponentinhelpingtoshiftcustomersfromthatafternoonandeveningdaypartintothemorning,andwearelayingthetracksonthatnow.

So,again,wearetakingthelong-termviewonChina.Wewanttobuildourbusinesstherightway.Wehaveaverystrongbrandandagreatexperiencethatweareprovidingourcustomersthere.


John,canyoujustspeaktowhatwearedoinginJanuaryonthefamilypartnerforumandwhatwehavedoneinthepastandwhythat'sbeensoimportant?


Yes,sooneofthethingsthatwehavetalkedaboutoverthecourseofthelastcoupleofyearsispartnerfamilyforumsinChinaandthesignificantrolethatthefamilyplaysinhelpingtheirchildrenselectwheretheywanttoworkandthetypeofcompaniestheywanttoworkfor.

Threeyearsago,weheldourveryfirstpartnerfamilyforuminBeijing,followedbyoneinShanghaiandthenanother,athirdone,inGuangzhou.InJanuary,wearegoingtodoourfourthfamilyforuminChengdu,andwhenyouthinkofthesefamilyforums,thinkofabout2,000people,ourpartners,aswellastheirmothersandfathers,theirchildreniftheyhavechildren,comingtothisandreallyseeingwhatStarbucksisandwhoweareasacompanyaroundthevalueswehave,theopportunitythatwearegoingtogivethemtogrow,andreallynoothercompanyisabletocreatethistypeofexperience.

Andthat'swhyoverthelastseveralyearswehavebeentheemployerofchoiceinChinaandwehavebeenabletoattracttoptalent.So,wearecontinuingtomaketheseinvestmentsandwearecontinuingtobeveryoptimisticaboutourfutureinChina.Butwewanttodoittherightway.

Operator :

KarenShort,DeutscheBank.

KarenShort (Analyst-DeutscheBank):




Thanksfortakingmyquestion.Ijustwanttoaskacouplequestionsaboutguidance.Iguess,though,thefirstiswithinyourcompguidance,canyoumaybejustgointomoredetailonthedifferentcomponents,food,tea,innovation,MobileOrder&Pay?

Andthen,thesecondquestionIhadisjustIguessyourfiscal2016guidanceforAmericascallsformoderatemarginexpansion,whichisconsistentwithyourlanguageonfiscal2015marginguidance,andyetobviouslymarginswereup80basispoints.SoIguessanycoloronwhatyourdefinitionisofmoderatebecauseyoudefinitelyseemmoreconfidentonyourabilitytodrivecomps,soI'mmaybewonderingifyou'rebeingconservative.Thanks.

Scott Maw(CFO):

Thanksforthequestion.Onthefirstpart,IthinkcompgrowthnextyearintheUSwilllookalotlikeitlookedthisyear,so,inotherwords,stronggrowthfromfood,probablyinthat2,maybe3pointrange.

Itisimportanttopointoutthiswasthefirsttimewehaveeverhad3pointsinfood,sothemomentumiscontinuing.Iwouldexpecttoseelimited-timeofferingsininnovation,asKevintalkedabout,withthingslikeColdBrew.Thereislotsofthingsinthepipelinethatwillcontinuetodriveapointor2ofcompthere.

Andthen,importantly,thecoreofwhatisdrivingourcomptodayisallofourregularplatforms,soespresso,icedbeverages,justsignificantgrowthinthosethingsthatwe'vebeendoingallalongandwejustcontinuetodothembetter.

SoIthinkthecompbreakdown,thinkofitasverysimilartowhatwedidbothinthequarterandtheyear.Andthen,yes,IexpectAmericascompexpansiontobeintherangeofwhatyousawthisyear,sowesaidmoderate.Thatwas80basispointsandIthinkthatisintherangeofwhatwe'llseeaswelookforwardfor2016.

Operator :

MattDiFrisco,GuggenheimSecurities.

MattDiFrisco (Analyst-GuggenheimSecuritiesLLC):

IalsohaveaquestiononalittlebitoftheguidancetherewiththemarginoutlookfortheUS.ItalsoseemsalittleconservativeifIlookatwherecoffeecostshavegone.Iwonderifyoucanjustgiveusanupdateofwhatyouhavelockedin.Iknowthelasttimeyoutalked,Ithinkyousaiditwas80%lockedin.Iamjustcuriousifthemajorityofwhatweareseeinginthecommoditymarketcomingdownnow,howthatdirectionallyrelatestoyourcoffee,ifthatismoresoamultiple-yearprogressofyoubeingabletorealizethatbenefit.

Andinaddition,alsoIjustwanttomakesureIunderstoodthepartnerinvestmentsthatyouhavemade.HowmuchhasthathelpedyoutomaybehavelessofahitfromthestructuralwageinflationcomingdownthepipewhenthecalendarturnstoJanuary?Howmuchareyoualreadyfronting?

Scott Maw(CFO):

Thanks,Matt.It'sScott.Asitrelatestocoffeecost,thefirstthingthatI'lljustremindeveryoneiscoffeeinourretailbusinesscontinuestobeadecreasingpartofoverallCOGS.Sojustkeepthatinmindaswegrow.Themovementincoffeepricesreallyimpactschanneldevelopmentmorethanitdoestheretailbusinesses.

Withthatsaid,weexpectcoffeecoststobealittlebitfavorableaswelookforwardinto2016andIthinkthiswasinherentinyourquestion,Matt.Ifyougobackacoupleofyears,you'llrecallthatin2014coffee




pricesspikedsignificantly.Theyspentagoodportionoftheyearabove[1.90].Theywentabove2.Headingintothatspike,wewerequitelonginourcoffeeinventoryandsowedidn'tbuymuchcoffeeatthoseprices.

Andsowhencoffeecamedownfor2015,westartedbuying.Andsoifyouweretotakealookatthespotrateimpacting2015,weweremuchlowerthanthatspotratebecauseofourcoffeebuyingpractices.Soasyourolloverinto2016,thedeltainthespotratedoesn'timpactusasmuchbecausewedidn'tpayasmuchaswe--asthemarketdidat2014.

Sothat'swhat'shappeningiswe'resmoothingoutthosecosts,avoidingthespikesthatwehadin2014andour2015P&L,andthat'srollingintosomefavorabilityin2016andIthinksomefavorabilityasweheadinto2017,dependingonwhatthemarketdoes.SoIthinkbeingpatienttheredefinitelypaidoffforus.

So,Cliff,doyouwanttotry(multiplespeakers)


Yes,Iwillrespond,ifImay,Matt,abouttheinvestmentsandwages.Soanythingthatweknowaboutorhasbeenmandatedeitherlocallyorbystatesacrossthecountry,wehaveanticipatedthatinourplans.

Weareobviouslyannualizingtheinvestmentsthatwewanttomakeandhavebuiltthatintoourplansfortheyearahead,andtheseareinvestmentssuchasfoodbenefitforourpartners,ourcollegeachievementplanandwhatwearegoingtodowithourpartnersthereandtheincreasedenrollment,4,000partnerstoday,andweseethatnumberincreasingsignificantlyinthecomingyears.Wehaveanticipatedthatandwe'veplannedforit.

And,obviously,therearesomeotherinvestmentswe'vemadetosupportourbusinessplanforthisyeararoundcompgrowth,aroundnewstores,aroundincreasedcomplexityofourbusiness,andwefeelveryconfidentwiththoseinvestments.Obviously,anythingthatcomesalongduringtheyear,wewillrespondtoandwewilldealwithitaccordinglyandupdateyouastheyeargoeson.

Operator :

JoeBuckley,BankofAmerica.

JoeBuckley(Analyst-BankofAmericaMerrillLynch):

CanIaskaclarifyingquestion?Ithink,Howard,inyourremarksyousaidmobilepaymentswere21%ofthemixand,Kevin,IthinkyouusedthesamepercentageforthemonthofOctober.SoIguessIjustwanttoclarifywhatperiodthat21%appliedtoanditmaybeboth.

Andthen,ifyouwould,talkalittlebitaboutwhattheMobileOrder&Paycomponentofmobilepayisandjusthowyouseethatbuildingastherollout--well,therolloutisovernow,buthowyouseethatbuildingovertime?


Yes,Joe,thisisKevin.The21%oftenderbeingpaidforwiththemobilepaymentswasastatisticforthemonthofOctober.That'sthelatestdatapointwehave,soit's21%forOctober.

Intermsofdataonpercentoftransactions--orpercentoftenderthat'sMobileOrder&Pay,sincewejustfinishedtherolloutintheUSlateinthequarter,wedon'thaveafullrunrateofquarterandsowe'restill-we'rewatchingthatadvance.IthinkAdamgaveyousomecoloronsomeofthelocationsthatareseeinghighusageofthat,butwe're--eachwaveofdeploymentwehavemadehasbeenadopted




fasterthanthepriorwave,andsoIthinkthat--therewillalwaysbesomecustomersthatwillgointothestorethatwantthein-storeexperiencethatwillorderatthepointofsaleandpaymobileandthenothercustomersthatwillwanttodoMobileOrder&Payforconvenienceandtheywillpay.

SoyouthinkaboutMobileOrder&Paywillalwaysbeasubsetofthetotalmobilepaymenttenderthatwetake,andassoonaswehavesometrackrecordoffullquartersofdata,wewillbeinabetterpositiontoshare.Adam,doyouwanttoaddanythingtothat?


Yes,justbuildingonwhatyousaid,Kevin--thisisAdam,Howardmentionedthatweareseeinga5millionmobileorderpermonthrunratealready,andwhilewearenotbreakingoutspecificpercentages,thereisarangeofmobileordernumbersacrossanumberofstoreshere,particularlyinourbusiesttiers,andweareseeingsignificantlymoreincrementaltransactions,incrementalityinourbusieststores.

WeareseeinginternationallyourlatestwavethatwentoutforCanadaandUK,sawevenafasteradoptionthantheNewYorkwave,whichwasfasterthanthepreviouswave.Sowe'regettingbetteratgettingfastercustomeradoptionanditbodeswellforMobileOrder&Payglobally.


Yes,Joe,I'lljustmentiononefinalpoint.TherearemanyscenarioswherethecustomerwantsthefullStarbucksexperienceandthenthereareotherscenarioswherethatsameconsumermaywanttheconvenienceofMobileOrder&Pay.

So,we'regoingtoseethebalanceofconsumersthataregoingtousebothandwethinkthat'saverygoodthing.Wehaveaddedthiscapabilitythatprovidessignificantconveniencetotheconsumer,butwehavedoneitinawaythatdoesnottakeawayfromorpreventthefullStarbucksexperienceonthoseoccasionsthatthatexperienceisdesirabletothem.Andso,ourabilitytoobserveandseehowconsumersrespondandreacttothis,Ithink,isveryimportantandthusfarIthinkweareseeinggreatresults,greatreception,andweareveryconfidentthatweareontherightpath.

Operator :

AndyBarish,Jefferies.

AndyBarish (Analyst-JefferiesLLC):

Justaboringnumbersquestion.TheG&Awasprettyheavyinthe4Qandactuallydeleveredforthefullyear,soI'massumingsomeofthatwasincentivecomp,giventheimpressiveresults,butisthatwherealotofthetechnologyinvestmentisalsofalling,Scott,andmaybewhatisyouroutlookfortheabilitytoleverageG&Ainfiscal2016?

Scott Maw(CFO):

Thanks,Andy.Itdefinitelywasdrivenbyboththetechnologyinvestment,aswellasthedeleveringyearoveryearwaspartiallydrivenbytheJapanacquisition,justgivenhowtheaccountingworksthere,andthensomecatch-updefinitelyinthefourthquarteraroundincentivecomp.

Ifyounormalizeforthat,ourgoalistogrowG&Aathalftherateofrevenue,andwebasicallyachievedthatin2015.YouhavejustgottostripoutsomeoftheaccountingfromtheJapanacquisitionandsomeoftheotheritemsthatareintherefromaninvestmentstandpoint.

Goingforward,wearestilltargetingtoleverageG&A.Iwilltellyouitwillbelessthanthathalftherateofrevenuegrowthaswelookin2016,andthat'sbecausethetechnologyinvestmentswillhit




G&Aandputalittlebitofpressureonthat.Butwestillexpectabitofleverageaswelookforward.

JoAnnDeGrande (InvestorRelations):

Thanks,Scott.Thankyouforjoiningustoday.ThisconcludesStarbucksQ4andfiscalyear-end2015earningscall.Goodnight.

Operator :

ThisconcludesStarbucksCoffeeCompany'sfourth-quarterandfiscal-year2015earningsconferencecall.Youmaynowdisconnect.

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Starbucks (SBUX) Earnings Report: Q4 2015 … Name: Starbucks Corp Company Ticker: SBUX Sector: Services Industry: Leisure Event Description: Q4 2015 Earnings Call Market Cap as of